What are some of the legal issues in declaring bankruptcy?

The word "bankruptcy" is legal term used when a person or organization declares that they are unable to pay their creditors, or that their ability to do so is impaired. In most cases, the person or organization will declare bankruptcy voluntarily. However, in other cases, the person's or organization's creditors may request a declared state of bankruptcy. Declaring bankruptcy is intended to give the debtor a new start through debt-relief.

The word "bankruptcy" is legal term used when a person or organization declares that they are unable to pay their creditors, or that their ability to do so is impaired. In most cases, the person or organization will declare bankruptcy voluntarily. However, in other cases, the person's or organization's creditors may request a declared state of bankruptcy.

Why declare bankruptcy?

Bankruptcy laws were put into effect to help people or organizations overburdened by debt. The idea is that, by declaring bankruptcy, the debtor receives a new start when the debt-burden is relieved, and an opportunity to repay creditors (to the extent possible).

Many people in today's world find themselves overwhelmed by combined debt, accumulated through student loans, credit card debt, mortgages and the like. When no other option seems possible, bankruptcy may offer the only way back to a healthy financial situation.

Where did the term "bankruptcy" originate?

The term "bankruptcy" has several possible derivations. The first is from the Latin word bancus, meaning "table" or "bench", and the Latin word ruptus, meaning "broken".

Another possible derivation of "bankruptcy" is Italian. The first bankers did their business in public places, sitting on a bench at fairs and markets. Thus, the word "bank" comes from the word for bench. When the banker was not longer able to practice his business, he signified his inability to keep practicing by literally breaking his bench. (Hence the expression "that broke the bank"). Because such banking practices were common in Italy, the term "bankruptcy" is said to come from the Italian banco rotto, which also means "broken bench".

What happens when someone declares bankruptcy?

After division of "non-exempt assets" (which may include cash, personal effects, sporting goods and cars), debtors may usually be discharged of (that is, freed of) their debts, even if the debts have not been fully paid.

While the bankruptcy procedures are taking place, the debtor may not be the target of additional bankruptcy action by creditors when a "stay" is imposed by the court. In this case, the creditor is prohibited from taking wages, continuing with lawsuits or telephoning the debtor to demand payment.

In cases of bankruptcy, a Trustee must administer the debtor's estate. The Trustee (usually a lawyer) is appointed by a Bankruptcy Court and usually has experience in bankruptcy law. He or she receives payment as a portion of the remaining funds in the debtor's estate.

The option to declare bankruptcy may be used in an illegal fashion: The term "bankruptcy fraud" refers to a person or organization that files for bankruptcy with the intent of evading paying for goods or services when there are enough funds to do so.

What are the different types of bankruptcy in the US?

Bankruptcy cases in the US are filed in United States Bankruptcy Court, part of the US District Courts system. However, state laws concerning bankruptcy vary, and the validity of the claims and exemptions must be supported by state law.

Six forms of bankruptcy are defined under the Bankruptcy Code, which is located at Title 11 of the United States Code – these are:

Chapter 7 - for an individual or a business; liquidation-style;

Chapter 9 - municipal bankruptcy;

Chapter 11 - primarily for businesses, but also for individuals with large assets and debts;

Chapter 12 - for family farmers and fishermen; payment-plan or rehabilitation-style;

Chapter 13 - for an individual with regular income; payment-plan or rehabilitation-style;

Chapter 15 - ancillary and other "cross-border" situations.

Chapter 7 and Chapter 13 are the most common types of bankruptcy filed for individuals.

When a person failure to pay their debt obligations then that's the time to declare legal bankruptcy voluntarily. It could help the debtors to start a new through debt relief.

The legal issues in declaring bankruptcy is issue of the person don't pay their loans or their debt.and declares that they are unable to pay their creditors, or that their ability to do so is impaired.

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